An institution’s trade secrets generally include confidential information with commercial value.  Trade secret protection may be available by common law, under state laws, or under federal law.  In addition, there may be both civil and criminal causes of action for the misappropriation and theft of trade secrets.

For instance, the Defend Trade Secrets Act of 2016 (DTSA) is a United States federal law that allows an owner of a trade secret to sue in federal court when its trade secrets have been misappropriated through “improper means.”[1]  Such “improper means” can include “theft, bribery, misrepresentation, breach or inducement of a breach of a duty to maintain secrecy, or espionage through electronic or other means.”[2]

Trade secrets can be used by institutions to protect numerous types of information.  For instance, under the DTSA, protectable trade secrets include information that “derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.”[3]  Furthermore, such information can include “all forms and types of financial, business, scientific, technical, economic, or engineering information, including patterns, plans, compilations, program devices, formulas, designs, prototypes, methods, techniques, processes, procedures, programs, or codes, whether tangible or intangible, and whether or how stored, compiled, or memorialized physically, electronically, graphically, photographically, or in writing.”[4]

Moreover, trade secrets can have an indefinite life, so long as they are kept secret and confidential.  For instance, under the DTSA, trade secret protection requires the owner of the trade secret to take “reasonable measures to keep such information secret.”[5]

An institution’s trade secrets can be its most valuable and prolonged assets.   However, institutions must take numerous steps in order to maintain the enforceability of their trade secrets.  Such steps include: (1) identifying the trade secrets; and (2) taking “reasonable measures” to maintain the secrecy of the trade secrets.

Step 1:  Identify the trade secrets

Protectable trade secrets must be outside the realm of general skills and knowledge in one’s field of business[6].  Furthermore, protectable trade secrets must not be readily duplicated without involving considerable time, effort and expense[7].  Based on the aforementioned requirements, institutions can consider the following guidelines in order to identify protectable trade secrets:

  • the extent to which the information is known outside the institution;
  • the extent to which the information is known by those involved in the institution;
  • measures taken to guard the secrecy of the information;
  • the value of the information to the institution and its competitors;
  • the nature of the information; and
  • the ease or difficulty with which the information could be properly acquired or duplicated by others.

Preferably, an institution should document and itemize the identified trade secrets.  Thereafter, the institution must proactively maintain the secrecy of the trade secrets.

Step 2: Maintain the secrecy of the trade secrets

The “reasonable measures” that an institution must take in order to maintain the secrecy of its identified trade secrets are not explicitly defined.  Based on current case law, such “reasonable measures” should preferably include written agreements, procedures, and policies that go beyond standard business practices[8].  Examples of such “reasonable measures” can include, without limitation, the following:

  • Have all employees sign confidentiality agreements that include an agreement to protect the institution’s trade secrets as a condition of employment.
  • Have employees sign non-competition agreements with the institution.
  • Require employees to participate in a confidential education program that informs employees that trade secrets should be kept secret and confidential.
  • Have each employee assign to the institution any trade secrets that were created by the employee during the course of his or her employment.
  • Develop, maintain and circulate an institutional policy regarding trade secrets.  Require the employees to certify or acknowledge that they read and understood the institution’s trade secret policies and procedures.
  • Periodically remind employees of the policies and procedures in place to protect the institution’s trade secrets.
  • Limit access to trade secrets to only those employees who need to know the trade secrets.
  • Maintain detailed records of who has access to trade secrets and when they have access to such information.
  • Keep a document control log to maintain a history of who has accessed the trade secrets.
  • Prohibit unsupervised access of non-employees to non-public areas of an institution.
  • Physically lock the areas in the institution where the trade secrets (or documents containing them) would reside.
  • Visibly label areas of the workplace which contain trade secrets with signs or labels indicating the same.
  • Require third parties, such as vendors, customers, or contractors, to execute confidentiality agreements before they receive or are given access to trade secrets.
  • Have systems in place to retain control over documents that contain trade secrets.
  • Where multiple copies of documents containing trade secrets exist, limit the number of copies and prohibit further copying of those documents.
  • Label or stamp documents that contain trade secrets with words such as “confidential” or “trade secret.”
  • Use passwords on computers that contain trade secrets.
  • Limit remote access to trade secrets stored in computer files.
  • Maintain firewalls between the internet and computer systems that contain trade secrets.
  • When an employee is terminated by the institution, conduct an exit interview and provide a means by which the employee may return any trade secrets that the employee holds.
  • Remind departing employees, verbally and in writing, that he or she has an obligation not to use or disclose the institution’s trade secrets.  In addition, request the departing employees to acknowledge the receipt of such communication.
  • If trade secrets have been used without authorization, take steps to prevent their further unauthorized use as soon as possible (e.g., through disciplining employees; sending letters or other communications to companies or persons that the institution believes are using or disclosing its trade secrets; and taking legal action to protect the trade secrets).

Conclusion

Trade secrets can be an institution’s most valuable and prolonged assets.  However, in order to maintain the enforceability of such trade secrets, an institution must be proactive in identifying its trade secrets and taking “reasonable measures” to maintain their secrecy.

[1] 18 U.S.C § 1839 (6)(A)

[2] Id.

[3] 18 U.S.C § 1839 (3)(B)

[4] 18 U.S.C § 1839 (3)

[5] 18 U.S.C § 1839 (3)(A)

[6] See, e.g., AutoTrakk, LLC v. Auto. Leasing Specialists, Inc., 2018 U.S. Dist. LEXIS 19089 (M.D. Pa. February 6, 2018) (dismissing trade secret misapporpriation claims by a company because the trade secrets were publicly available through the company’s website and patents).

[7] See, e.g., United States v. Dongfan Chung, 622 F. Supp. 2d 971 (C.D. Cal. 2009) (indicating that the misappropriated information constituted trade secrets because the information was not generally known or readily ascertainable).

[8] See, e.g., Freedom Med. Inc. v. Whitman, 343 F. Supp. 3d 509, 525 (E.D. Pa. 2018).  Also see Lux Global Label Co., LLC v. Shacklett, 2019 U.S. Dist. LEXIS 129103 (E.D. Pa 2019) (holding that a trade secrets owner took “reasonable measures” to maintain the secrecy of its trade secrets by “ storing sensitive files on separate network drives with restricted access through individual login and password protection, limiting information access to high-level employees and officers only, prohibiting non-employees’ unsupervised access to non-public areas of their offices, and monitoring employee telephone and computer usage.”).  Also see Physician’s Surrogacy, Inc. v. German, 2018 U.S. Dist. LEXIS 16261 (S.D. Cal. Jan. 31, 2018) (indicating that the trade secrets owner took “reasonable measures” to maintain the secrecy of its trade secrets by requiring employees to sign confidentiality agreements and limiting employee access to the company’s premises upon termination of employment).